MUMBAI: Zee Entertainment Enterprises Ltd (Zeel) has posted a first-quarter performance that smells of a slowdown in advertising revenues for the media sector as one of India‘s largest television broadcasting companies has guided to a below double-digit growth this fiscal.

Zeel has disappointed market estimates as it reported a 13.3 per cent slide in consolidated net profit, impacted by a slowing ad revenue growth while expenses jumped with the company anticipating buoyancy in the economy.

Advertising revenue for the three-month period ended June 2011 grew just 0.5 per cent to Rs 3.79 billion. The flagship Hindi general entertainment channel, Zee TV, came under pressure even as it held on to its third position way behind rivals Star Plus and Colors.

Zeel MD and CEO Punit Goenka feels there is a softening in the advertising economy. "While our business fundamentals remain strong, the environment for ad spends has been weak, in our view, and to an extent the change of pace was quite fast. We are hopeful that with the onset of festive season, we should see some normalcy in advertising spends," he said. 

Subscription revenue stayed strong but the 16.7 per cent growth couldn‘t quite make up the growth pace that Zeel was anticipating. Operating revenue rose 3.1 per cent to Rs 6.98 billion from Rs 6.77 billion a year ago.

Net profit fell to Rs 1.30 billion (from Rs 1.50 billion) while expenses grew by 10.7 per cent.

Meanwhile, the consolidated operating profit (Ebitda) for the quarter skid 16.6 per cent to Rs 1.56 billion, from Rs 1.87 billion in the year-ago period. 

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Subscription revenue managed a strong double-digit growth. Domestic subscription revenue stood at Rs 2.07 billion, while international subscription revenue stayed at Rs 976 million.

Revenue from domestic DTH operators, part of domestic subscription revenue, was at Rs 1.11 billion, up 55.9 per cent. Subscription revenue from international operations dropped 3.5 per cent, while subscription revenue from domestic cable increased by 8.4 per cent.

Zeel chairman Subhash Chandra said, "The widespread adoption of satellite based television services via DTH is proving to be a big game changer for television business in India and creating a more sustainable business model for the industry. We expect some consolidation to take place in the television media space. Creation of MediaPro Enterprise is one step in that direction, which will help develop the pay revenue stream for the industry. New content formats, like HD and 3D, are being experimented with and will likely open up new revenue streams for the broadcasters."
 

Programming and operating cost for the quarter saw a 27.5 per cent rise to Rs 3.05 billion, from Rs 2.39 billion a year ago. Employee cost rose 53.2 per cent over the earlier year. Selling & other expenses for the quarter stood at Rs 1.25 billion, increasing by 55.1 per cent over the corresponding period of the previous fiscal. Total costs incurred by the company rose 36.5 per cent to Rs 4.90 billion.

Overall, programming and operating cost in the quarter rose 12.2 per cent to Rs 3.42 billion compared to Rs 3.05 billion a year ago. Employee cost increased by 25.1 per cent over the year-ago period. Selling & other expenses in the quarter were flat at Rs 1.25 billion, as compared to the corresponding period of the previous fiscal. 

This includes additional one-time expense on marketing and rebranding exercise undertaken during this quarter. Total costs incurred by the company in this quarter stood at Rs 5.42 billion, showing an increase of 10.7 per cent over the corresponding period last fiscal.